The Supreme Court of British Columbia recently held that an owner remains a proper party to an action to enforce a claim of lien even when security has been posted pursuant to s. 24 of the Builders Lien Act (the “Act”).
In Paramount Drilling and Blasting Ltd. v. North Pacific Roadbuilders Ltd. and others 2004 BCSC 622, the lien claimant had started an action to enforce its claim of lien. The general contractor applied for an Order to pay money into Court as security for the land, as permitted by s. 24 of the Act. That application was granted, the funds were paid into Court, and the claim of lien was removed from title. The owners then brought this application to substitute themselves with the general contractor as the defendant in the action, such that the action against the owners would be effectively dismissed.
In bringing their application, the owners relied on an earlier decision where the B.C. Supreme Court did order that the action be dismissed against the owner in similar circumstances: Blueline Stucco Ltd. v. Discovery Reach Developments Ltd.,  B.C.J. No. 1883 (QL) (S.C.). The Court in Paramount Drilling considered the Blueline decision, but also considered some cases decided under the earlier version of the Act. The Court in Paramount Drilling did not follow the Blueline case, but instead followed the earlier cases decided when the former version of the Act was in force. The Court in Paramount Drilling found that the Act did not allow the action to be discontinued against the owners because the claim of lien remained a claim against the land, even though the funds paid into Court were a substitute for the land. Since there remained a claim against the land, the owners remained proper parties to the action.
The Court suggested that the owners might be entitled to a stay of proceedings as against them, until the action between the general contractor and the lien claimant was determined. However, as this issue was not squarely before the Court, no final determination on this point was ever made.
This case is significant because owners often require clear title and pay money into Court, or into trust, as security for that purpose. This case found that even when this is done, and the claim of lien is removed from title, the owner remains a proper party to the action brought by the lien claimant. By remaining a party to an action, the owner may incur further legal fees, and may also ultimately be held liable to the lien claimant for costs over and above the amount paid into Court as security. This is of particular concern when the other defendant (i.e. the general contractor) becomes insolvent, and the lien claimant looks to the owner for payment of all legal costs.
How can the owner protect itself in such circumstances? As noted above, the Court may grant a stay of proceedings against the owner, which temporarily allows the owner to cease participation in the action. An owner may consider posting (or have the general contractor post) more than the usual 10% or 15% as security for costs, particularly if the amount of the claim of lien is modest. An owner may also consider an indemnity agreement with the party it has contracted with (i.e. the general contractor).
Note that leave to appeal of the Paramount Drilling decision has now been granted, which means that the Court of Appeal will decide whether or not the decision in that case should be overturned.